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Toshiba Says It Favors Bain Group’s Bid for Microchip Business

Toshiba’s banks are keeping the company afloat, but if it does not secure a significant infusion of new capital by March, it could be expelled from the Tokyo Stock Exchange. That would essentially cut it off from a broad swath of public investors.

The chip negotiations have been complicated, however.

Western Digital shares ownership with Toshiba of a flash memory production operation in Japan and argues that the Japanese company cannot sell the chip business to an outside party without its approval. Western Digital immediately objected to Toshiba’s decision on Wednesday to name the Bain group its favored bidder.

“We are disappointed that Toshiba would take this action,” Western Digital said in a statement. “Our goal has been — and remains — to reach a mutually beneficial outcome that satisfies the needs of Toshiba and its stakeholders.”

Toshiba had already picked the Bain-led group once before, in June. But the choice provoked a furious response from Western Digital. Legal pressure from the American company prompted Toshiba to back away from its previous commitment to Bain and reopen talks with other potential bidders.

Foxconn, which makes iPhone and other devices and hardware that carry the brand names of other electronics heavyweights, has publicly pushed to be the buyer. But its heavy manufacturing footprint in mainland China has promoted fears in Japan that the business could eventually leave the country and end up on Chinese soil.

Toshiba’s microchip unit is second only to Samsung Electronics of South Korea in producing so-called NAND flash memory chips. The business has been profitable for Toshiba, which pioneered NAND technology.

The winning bidder would have to show that it could nurture the microchip business while offering enough cash now to return Toshiba “to positive equity,” Yasuo Naruke, senior executive vice president at Toshiba, said in a statement.

Western Digital suggested it would continue to press Toshiba in the courts — the companies have filed dueling lawsuits — and at an arbitration tribunal operated by the International Chamber of Commerce, which is holding hearings on the sale at Western Digital’s request.

“We remain confident in our ability to protect our J.V. interests and consent rights,” Western Digital said, referring to the companies’ Japanese joint venture.

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